Defined contribution system managers focusing on fee reductions

Reducing fees was a top priority of defined contribution system managers last year and will continue to be key in 2014, according to a survey by Callan Associates.

The percentage of plans that offered passive funds, which have lower management fees, in 2013 was up to 12.5 percent. The survey of 107 plan managers found that more sponsors offered “active/passive mirror” funds, which include major asset classes of both active and passive funds. The percentage grew from 12 percent in 2012 to 21 percent last year. Fully 24 percent of the managers said they plan to increase such offerings this year.

Other cost-saving measures employed by fund managers included reducing the use of mutual funds and evaluating fees charged by recordkeepers with an aim to renegotiating them.

To that end, 92.9 percent said they had evaluated fees last year, up from 84.7 percent in 2012. About half of respondents, 44.9 percent, said they were able to reduce fees as a result of the evaluation.

When it came to choosing funds, Callan found that cost was rated the second most important attribute, trailing only investment performance.

For the first time, Callan said more plan sponsors reduced the number of funds they offered instead of increasing them. Still, 73 percent said their offerings remained the same in 2013. That number remained steady when sponsors were asked about 2014 plans.

Callan, based in San Francisco, conducted the survey in September and October. Most companies (80.3 percent) offered 401(k) plans with 403(b) and 457 systems also represented. About 58 percent had plans with more than $1 billion in assets.